INTEGRATION IN TIMES OF CRISIS

Transcription

1 University of Trento School of International Studies INTEGRATION IN TIMES OF CRISIS Testing Neofunctional hypotheses: a political economy investigation of crisis-led integration. Author: Francesco Nicoli Supervisor: Prof. Luigi Bonatti Thesis submitted in partial fulfillment of the requirements for the degree of Doctor in Philosophy in International Studies. Trento, 30 September 2016

2 Integration in times of crisis. Testing Neofunctional hypotheses: a political economy investigation of crisis-led integration Francesco Nicoli, Università di Trento Francesco.nicoli@unitn.it

3 Acknowledgments During these three years of research I greatly benefited from the advice and support of many people. First, I am grateful to the faculty and staff of the School of International Studies in Trento, who have contributed to make this experience smoother and more enriching than I expected beforehand. In particular, I am in debt with professor Luigi Bonatti for his masterful guidance and his dedication. Furthermore, I wish to thank professors Andrea Fracasasso and Christopher Gilbert for their invaluable support in navigating the perilous waters of Econometrics; professor Simona Piattoni for her advice on integration theory, and professor Mark Beittel for sharing his experienced understanding of the subtitles of academic life and of the English language. I also wish to thank Cinzia Alcidi, head of the Economic Policy Department at CEPS in Brussels and professor Mark Hallerberg, at the Hertie School of Governance in Berlin, for their warm welcome in their respective institutions and their valuable advice on the ways forward. In addition, I would like to thank professor Ben Crum, from the Vreije Universiteit Van Amsterdam, for his suggestions on Chapter 2. In each of these three institutions I found supportive colleagues and good friends, who have helped me in refining the ideas and results presented here. In particular, I would like to thank Martin Duchac and Leila Giannetto from the School of International Studies; Brian Fabo and Caroline Leneaerts from CEPS; and Maurits Meijers from the Hertie School of Governance. Similarly, I would like to thanks my colleagues at the INET Working Group on Europe s Political Economy, who have contributed to strengthen my research with their suggestions. Finally, I am especially grateful to Doris, who has relentlessly supported me in these years in many ways. Without her dedication in reading, revising, and criticizing my work, this dissertation would have been a very different (and substantially poorer) piece of research.

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5 Contents Introduction... 1 Part One: A Neofunctional analysis of the Eurocrisis Chapter One: Neofunctionalism Revisited: Theories, Questions, Methodologies Chapter Two: Crises and institutional change the long-run: an historical overview of Europe s 70 years of unintended integration Chapter Three: Is the Eurocrisis a Functional Crisis? A quantitative investigation of the Eurocrisis endogeneity Chapter Four: Spill-arounds, but mainly spillovers? A qualitative assessment of the crisis functional outcomes Part Two: Postfunctionalism and the Eurocrisis Chapter Five: Postfunctionalism and the issue of democratic legitimacy in the era of Fiscal integration Chapter Six: Powers, Governance, Eurobonds. Did the crisis affect preferences for integration? Chapter Seven: Hard-line Euroscepticism and the political fallout of the Eurocrisis: evidence from a 108 elections panel study Conclusions Bibliography

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7 1 Introduction L Europe se fera dans les crises et elle sera la somme des solutions apportées à ces crises Jean Monnet, Memoirs, 1978 I am sure the euro will oblige us to introduce a new set of economic policy instruments. It is politically impossible to propose that now. But some day there will be a crisis and new instruments will be created. Romano Prodi, Financial Times, Born from the ashes? Why revisiting Neofunctionalism (again) in times of crisis Endless articles, books and papers have begun, in the last half-century, with one of the two previous quotes. Yet, the turn of the year 2017 may sign the ninth consecutive year of crisis for the EMU, which has only inched towards a comprehensive and stable solution of its disease. While large parts of the world economy have suffered as much as Europe during the years of the global recession which have followed the collapse of Lehman Brothers in 2008, the European Union, and the Euro Area in particular, which has plunged into an even deeper crisis.

8 Introduction 2 Despite the several concessions in terms of sovereignty accepted by EMU member states, an uncontroversial leap into the realm of fiscal integration which according to many, is essential to permanently solve the EMU disease is yet to be made. On the one hand, the Eurocrisis has generated spillovers in areas such as macroeconomic, macroprudential, banking and fiscal policy, which, unthinkable just fifteen years ago, are now hardly reversible. It appears that the engine of European integration its functional integration dynamics is once more at work. Intrinsic tensions have emerged: a majority of member-states are hesitant in undertaking the fundamental steps towards integration of core state powers, some of which, particularly in the field of fiscal policy, constitute a high priority for a permanent resolution of the Eurocrisis. Here lays a fundamental conundrum: Europe is affected by a selffuelling, circular disease, as briefly suggested by Wijsman (2016). Not having yet completed its democratic structures, to achieve legitimacy it still relies primarily on output legitimacy. Precisely because democratic structures are underdeveloped, many believe that the actions required to address the crisis permanentlysuch as creating a fiscal union cannot be implemented. However, without such steps, the crisis persists, thus harming output legitimacy; and as output legitimacy fades, the support for further integration weakens even more, fuelling the EMU s Circular Illness. In other words, without appropriate powers to address the crisis, the Union s institutions lack means to provide either stabilization or economic stimulus at central level, fuelling, in ever-growing shares of the population, a growing scepticism towards the capabilities and the usefulness of the Union. In turn, this lack of effectiveness undermines the people s trust in the Union and their willingness to proceed with further European Integration, at the moment, probably, where integration is most needed. The Eurosceptic contagion, which began at the periphery of the Union with the electoral triumph of Syriza in Greece and dramatic vote to leave the EU in the United Kingdom, may reach core states like Austria, France and Germany soon enough. The Eurocrisis, and the associated austerity, have generated a massive amount of academic thinking on European monetary integration and its limits, both in Political Science and Economics. For many, including Nobel Laureate Joseph Stiglitz (2016) the Eurocrisis has constituted the occasion to ramp up criticism of the international economic order: the Single Currency -which seemingly protected its members at the outbreak of the storm in has often been pictured like the true responsible of the endless crisis. Criticism of the Eurozone s setup is enshrined in three arguments (only partially overlapping), which recur

9 Introduction 3 in the recent debate. First, some claim that the very introduction of a Single Currency, eliminating the possibility for monetarization of the national debt and the manipulation of the exchange rate, is to be considered the true responsible of the European illness. Second, some consider that, although the Single Currency as such helped both in strengthening national economies and in protecting them against the 2008 financial storm, to be sustainable in the long term requires institutions and incentives able to shape the actions of national policy makers. However, such institutions and incentives failed to prompt national change and adaptation to the new conditions; national policy-makers largely continued to do business-asusual, albeit in a different scenario. Thus, the Single Currency (and its institutions) is partially responsible for the crisis, having failed to promote national adaptation. Third, some believe that the Single Currency, as such, has no direct responsibilities: the continuing European crisis is rather due to the over-imposed austerity policies, wrongly considered as the only option to protect monetary integration. They claim a different solution existed: by letting the budget deficit increase, domestic growth could be fostered thus restoring confidence and investment (an exhaustive literature review on the Eurocrisis is provided in the first part of Chapter 3). Despite the uncertainty surrounding the exact role of the Monetary Union in contributing to the current crisis, integration in the Euro Area has proceeded as a response to the crisis. Yet, the end of the Eurozone s troubles is still far, and further integration will be achieved in the incoming years as agreed in the Five Presidents Report, released in Spring However, the institutions and procedures created so far, and as far as official proposals are concerned, institutions likely to be created in the next years - present elements of fiscal and economic integration which might undermine the democratic legitimacy of the European Union. Indeed, the rise of Eurosceptic forces observed in occasion of the European elections of 2014 witnesses not only the rejection of austerity policies (which would be coherent with the traditional understanding of EU s output legitimacy) but indeed a true integration fatigue and a sentiment of rejection against institutions and symbols of European integration. Yet, the wakes of a catalyzing event such as the Eurocrisis are hardly limited to the Economics disciplines. Of all those spillovers, this doctoral dissertation focuses in particular on political integration theory. In fact, of all branches of political science, scholars of international integration should have been the better-

10 Introduction 4 prepared to deal with the Eurocrisis; the once-leading theory of European Integration, Neofunctionalism, enshrined within its crisis-feedback dynamics the very engine of supranational integration. But the golden age of Neofunctionalism had long passed, and its heritage notwithstanding, the Eurocrisis caught many scholars of European integration off-guard. To some extent, that integration advances through crises was one of the classical, old-age adages that everybody knows but most prefer to ignore; - despite the fact that, since its inception, crises and integration have advanced hand-in-hand (for an historical perspective on the crisis-integration dynamics, see Chapter 2). In fact, the idea that integration proceeds through crises is all but new: it belongs to the functionalist integration paradigm. Functionalism constitutes a loose body of theories of supranational integration which original formulation dates back to the first works of David Mitrany in It has undergone several cycles of elaboration, from the original Functionalism of Mitrany (early functionalism, as defined in this work), to the Neofunctionalism (or micro-functionalism, as it is named throughout this volume ) of Haas (1959, 1964) which focuses on agents interests and has been largely inspired by the behavioral revolution in social sciences; to the neo-neofunctionalism (or macro-functionalism as we name it here) of Schmitter (2002), based on the idea of cycles of crisis-induced integration; to conclude with the Postfunctionalism approach of Hooghe and Marks (2009), postulating the end of the market-honeymoon (Hartmann & De Witte, 2014) and the entry of the masses on the scene of European policy making. Moreover, functionalist-inspired arguments are present in several other disciplines, which truthfully claim at least in part an ascendance in the genesis of the theory. From Balassa (1960) and Mundell s (1960, 1961) economic and monetary integration for economic sciences, to integration through law in European law studies, to Erhard and Müller-Armack s (1978) Soziale Marktwirtschaft and Böhm- Eucken s Ordoliberalism, Functionalist reasoning encompasses a vast range of social disciplines and has gathered, over time, many fundamental inputs from leading authors. Nevertheless, as a comprehensive theory of integration, Neofunctionalism was somehow neglected and considered outdated when the crisis struck Europe. As a theory, it was deemed flawed by several wellknown problems: first, it suffered from a perceived inability to explain delays, stagnation, or even disintegration: in the opinion of many scholars, the most-known (but not the most updated) version of

11 Introduction 5 functionalism, dating back to Haas 1959 seminal book was unable to explain such failures. Moreover, over time the several versions of Functionalism and its related theories have probably overgrown, loosening their connections with the original argument and with each other, to the point Functionalism, as such, lacks today the backing of the new generation of leading scholars in European integration, albeit prominent academic work has flourished in its sister and offspring fields. Moreover, perhaps as a consequence of its own overgrowth, Functionalist scholarship had suffered from the increasing influence of the liberalintergovernmentalist school, eminently represented by Andrew Moravcisk (1998) s work. Good timing contributed to Moravcisk s success: his theoretical claims had found, in fact, sudden empirical evidence in the intergovernmental shift of the very functioning of European Institutions occurred since the failure of the European Constitutional Treaty in 2005 by the hands of the French and Dutch voters; the clear intergovernmental management of the crisis (but not its outcomes, as discussed in Chapter 4) have somehow contributed to strengthen the liberal-intergovernmentalism s position as a leading theory of integration. Yet liberal-intergovernmentalism, while successful as a theory of international organization by correctly explaining how nation states choices reflect the domestic understanding of national economic and political priorities, fails as a theory of integration because it takes such interests and preferences as strictly exogenous phenomena. The added value of Functionalism, in all its incarnations, has always been to explain the endogenous dynamics that lead states to integrate over time, emphasizing the structural, pathdependency consequences that each step of integration produces. Paradoxically, being Functionalism a theory of crisis-led integration, only a handful of scholars openly referred themselves as Neofunctionalists at the outbreak of the crisis; the discipline of European Studies was lacking a solid backbone of scholarship on crisis-led integration, precisely in the moment when crisis-led integration was about to unleash. In the wake of the Eurocrisis, the European integration debate has been marked by several attempts to move beyond the liberal-intergovernmental paradigm, with important contributions, for instance, from Kalypso Nikolaidis (2012) and Sergio Fabbrini (2016). Others have attempted to revert towards, or reinvigorate, a systemic functionalist approach to explain crisis-led integration, for instance Genschel and Jachtenfuchs (2016), Isiksel (2016), Schmitter and Lefkofridi (2015a, 2015b) or Schimmerfellig (2014). Despite the value of recent contributions, however, the principles of functional integration theory are in need of a

12 Introduction 6 comprehensive revision enabling a coherent understanding of the paradigm and ensuring that its explanatory potential is kept up to date with the developments in the real world. This doctoral dissertation, rather than a self-contained exercise, was conceived and planned from its inception as a path-opening work aimed to further such a goal in a series of papers on Systemic Functionalism, both theoretical and empirical in nature. Indeed, the dissertation is structured to lay down the fundamental bricks of the common foundations upon which all functionalist approaches micro, agent-based Neofunctionalism à la Haas, Schmitter s neo-neofunctionalism, and Hooghe-Marks Postfunctionalism can be re-organized and understood in their relations. The Eurocrisis constitutes, in my vision, the perfect occasion to strengthen and test a macro-functionalist theory of integration. A broad, two-tier research problem emerges: is the Eurocrisis a Functional Crisis, as defined by Philippe Schmitter? To what extent is the Eurocrisis politicizing the process of European Integration, as hinted by Hooghe and Marks, thereby confirming the integration hypothesis of Schmitter? The implications of this problem are far wider than the settlement of a theoretical debate; if, generally, Neofunctionalism is correct, and if the hypothesis concerning the inception of the transformation cycle is correct, it would imply that the Union has reached a point of no-return, where it either moves towards full federalization, or it risks a permanent break-up. Moreover, despite their general and theoretical formulation, the specific answers to these questions, as laid down within the different papers of this dissertation, may enrich quite different bodies of literature. Chapter 2 provides an innovative account of European Integration s economic history; Chapter 3 inserts itself in the economics debate on the origins of the Eurocrisis; Chapter 4 contributes to the debate on crisis-led politicization of the EU; Chapter 5 provides a theoretical contribution on the fundamental challenges of the EU; Chapter 6 inserts itself in the literature on how the crisis has affected preferences for integration; finally, Chapter 7 provides an innovative approach for assessing the political fallout of the crisis by looking at electoral hard-line Euroscepticism. 2. About this volume This dissertation attempts to operationalize the quest for an answer to this broad research problem through six standalone papers clustered in two parts, plus introduction and conclusion. In addition, Chapter 1 reconstructs the key elements of systemic functionalism, guiding the reader through the theoretical pillars

13 Introduction 7 of this work presenting its overall logic questions, methodologies, and chapter connections. Part One of the dissertation (Chapters 1-4) deals with the fundamental question concerning the Neofunctional nature of the Eurocrisis, attempting to clarify to what extent the Eurocrisis can be really qualified as a functional crisis. Chapter 2 provides a comprehensive historical account of functional crises through the first 60 years of European Integration; Chapter 3 provides an econometric test of the endogenous nature of the Eurocrisis; Chapter 4 provides a qualitative assessment of the functional nature of the institutions introduced during the crisis. Part Two of the dissertation (Chapters 5-7) dives into the possible Postfunctional implications of the Eurocrisis, analyzing to what extent the crisis is contributing to create a mobilized European public sphere. In particular, Chapter 5 provides a theoretical analysis of how the crisis is changing the legitimacy of the EU; Chapter 6 provides an econometric assessment of the crisis impact on citizens preferences for further integration; finally, Chapter 7 provides an analysis of the crisis impact on the performance of extreme Eurosceptic parties. A word of caution: this dissertation is in many ways a hybrid creature. It touches upon multiple disciplines: Integration theory in Chapter 1; economics mainly in Chapters 2 and 3; European Studies in Chapters 4-7; legal philosophy in Chapter 5. I understand the risks of speaking to multiple audiences: readers from different disciplines may stumble across parts of the dissertation that she or he may consider repetitive, or excessively simplified, or simply not stimulating enough to be worth a careful analysis. However, I maintain the belief that integration encompasses different fields and requires a genuine, multidisciplinary understanding; this is therefore a risk I am willing to take. Moreover, it is something short of a coherent book (although parts of it may one day become one) and something more than a few connected papers. Several chapters of this volume have been published as standalone pieces either in book chapters (for example Chapter 5, in an edited volume of the University of Freiburg) or in leading journals (like Chapter 7, in the Journal of Common Market Studies); others are currently under review (Chapters 2 and 4). In fact, the chapters of this volume, although linked together by a linear research design, have been written mostly to be stand-alone pieces of research. This may have two implications: first, precisely because they are all connected through their overarching aim and their joint

14 Introduction 8 contribution to a wider research question but simultaneously they also exist as stand-alone pieces, they tend to include a section on literature review which in some cases may be overlapping. Second, the volume, overall, recurs to a wide range of methodologies which are specific to individual papers. Chapters 2 and 5 are mainly theoretical; Chapters 3, 6 and 7 provide econometric analysis; Chapter 4 applies qualitative empirical research. The rationale and the specific research question behind each of the chapters is discussed in the second part of Chapter 1, which provides a summary of Neo-Neofunctionalism and discusses models, questions and methodologies. Table A below shows the list of chapters and their current publication status.

15 Introduction 9 Table A: Dissertation Structure Chapter Title Publication status Methodology & approach 1 Neofunctionalism revisited Not for publication. Parts of it in review along Theoretical reconstruction with parts of Chapter 5 (see below) 2 Integration through crises: a systematic In review at Review of International Political Historical/qualitative Part 1 view of Europe s 70 years of unintended integration Economy (2 nd review) the 3 Is the Eurocrisis a Functional crisis? A Reserved for INET Special Issue on Europe s Econometrics Neofunctional nature of the Eurocrisis 4 quantitative assessment Spillarounds, but mainly spillovers? Re- Convergence and Divergence on the Journal of Economic Policy In review at Comparative European Politics (1 st Qualitative/text & legal analysis assessing crisis-led functional integration 5 Democratic governance in times of fiscal integration: from functional to Postfunctional legitimacy? review) Early (2014) version published as chapter in: Krieger, T., Panke, D. and B. Neumaker (eds) (2015) Europe s Crisis: the conflict-theoretical perspective. Nomos Publishing. Qualitative/ political philosophy Part 2 the postfunctional consequences of the Eurocrisis 6 Did the Eurocrisis affect preferences for integration? 7 Hard-line Euroscepticism and the Eurocrisis: evidence from 108 elections panel study New (2015) version in published on the Journal of European Integration (forthcoming) A mixed Chapter1/Chapter 5 version in review at Polish Journal of Political Science In review at the Journal of Common Market Studies Published in Journal of Common Market Studies (forthcoming) Econometrics Econometrics

16 Introduction 10 Additional remarks Overall, this dissertation is the result of more than three full years of research, conducted in three different institutions in three countries (University of Trento in Italy, the Centre for European Policy Studies in Brussels, Belgium and the Hertie School of Governance in Berlin, Germany). As a result, the research work carried out in these years has produced not only the papers here presented as dissertation chapters, but also several other pieces of research which have not been directly included in the dissertation due to space constraints and the need of maintaining a clearer red wire between the chapters. Table B provides a list of published and under-review papers written as complementary work to the main body of the dissertation. Table B- spin-off research (published or under review) Nicoli, F. (2016) Governance in the 2025 run-up: a Joint Budgetary Procedure. Perspectives on Federalism Perspectives on Federalism, Issue 8, No. 2, pp Nicoli, F. (2016) From governance to government? Towards a Genuine Economic and Monetary Union Journal of Economic Policy,,vol. 32, Issue 3, pp The paper won the first prize of the Italian Parliament-Eunews research competition on how to govern Europe Nicoli, F. (2015) Eurocrisis and the Myths of European Redistribution: Illegitimate, Unsustainable, Inefficient? Perspectives on Federalism, Vol. 7, Issue 3, pp ; Nicoli, F. (2014) Populism, Polarization, Politicization, Participation. Projecting the EU Beyond the Market? Chapter in Growing Populism and European Elections. Institute of European Democrats, Alcidi, C., Barslund, M., Busse, M. and F. Nicoli (2016) Labour Mobility and the European Unemployment Benefit Scheme. In review as European Commission Working Paper; Moreover, as a part of a broader effort towards research dissemination, the papers of this dissertation have been presented in a series of international conferences; the list is presented in table C below. Table C- summary of dissemination efforts From Governance to Government: how to organize a smooth transition. Prize lecture given at the International Conference How to govern Europe, Camera dei Deputati, Rome, November 2016 Powers, Eurobonds, Governance.Presentation for the International Conference Piercing Together a Paradigm, Central European University, Octover 2016 A theory of Functional Legitimacy. Presentation for the International Conference EU legitimacy in times of crisis, Warsaw, 20 th -21th June Is the Eurocrisis a functional crisis? Quantitative and qualitative evidence, and Extreme Euroscepticism and the crisis: quantitative evidence, two presentations for the SGEU Pan-European Conference The Union Constitutional and Institutional Adaptation, June 16 th -18 th, 2016 Did the Euro contribute to the Eurocrisis? Quantitative evidence from a 700 observations panel study. Presentation for the Second Meeting of the INET Standing Group on Europe s Political Economy, University of Trento, 2 nd -5 th of June, 2016 Organization and Coordination of the inception meeting of the INET Standing Group on Europe s Political Economy, jointly organised by INET and CEPS Brussels, February 25 th - 28 th, 2016 From Governance to Government? A proposal for a Joint Budgetary Procedure to overhaul the new economic governance. Presentation for the International Conference What Budget, resources fiscal and borrowing powers for the EU? Florence, 10 th -13 th November 2015 Electoral Euroscepticism and the Economic Crisis: Evidence from 108-Elections Panel Study Across Europe. Presentation for the Quinquennial International Conference of the European Electoral Survey, University of Mannheim, November 6 th -8 th, 2015 Solidarity in times of crisis: inefficient, illegitimate, unsustainable? Presentation for the International Conference Solidarity in Hard Times", University of Madrid CEU San Pablo, June 9 th -12 th, 2015

17 Introduction 11 Democratic legitimacy in the Era of fiscal integration, and Electoral Euroscepticism and the Economic Crisis: Evidence from 100-Elections Panel Study Across Europe. Two presentations for the Fifth Euro-Academia international conference, Barcelona, th March, 2015 Democratic Legitimacy, Fiscal Integration and the Governance Trilemma. Presentation for the international conference Europe's Crisis: The Conflict-Theoretic Perspective, University of Freiburg, September 2014 Populism, Polarization, Politicization, Participation: projecting the EU beyond the Market? Presentation for European Union and Rising Populism: a Challenge for Democracy conference, Institute of European Democrats, Bratislava, April 2014 The issue of democratic legitimacy in the Era of Fiscal integration. School of International Studies, University of Trento, 8 April 2014 Functional and economic analysis of the building European Fiscal Union Presentation for Questioning Re:Generating Europe Conference, German Journal of European Law. School of International Studies, University of Trento, 16 December 2013

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19 Part One: Neofunctional analysis of the Eurocrisis 13

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21 15 Chapter One: Neofunctionalism Revisited: Theories, Questions, Methodologies 1. Introduction Neofunctionalism is, likely, the most known, praised and criticized theory of supranational integration. This doctoral dissertation aims to test some of its hypotheses in the framework of the Eurocrisis; indeed, it constitutes the red wire linking together the individual papers of this doctoral dissertation, papers that would, otherwise, be stand-alone pieces of research. Despite their stand-alone nature, the research presented in Chapters 2-7 conjures towards the common goal of modelling, testing and improving Neofunctionalism; or rather, that particular version of Neofunctionalism resulting from the intertwining of Philippe Schmitter s Neo-Neofunctionalism, Hooghe-Marks Postfunctionalism, and several other contributions. In this framework, the goal of this Chapter is to provide a summary of the evolution and theoretical foundations of Systemic Functionalism, and naturally discuss its operationalization through a series of research questions the individual papers deal with. Before proceeding with a detailed discussion of the dissertation s questions and research design, it is useful to briefly recall the evolution of the theoretical body of functionalism (along with the definitions of key concepts recurrent throughout the dissertation, discussed in section 3). 2. Hundred years and counting: Functionalism over time Functional integration theory has a long history and has gone through several stages of revision and change. Roughly, four phases can be identified: Mitrany s early Functionalism; Haas Neofunctionalism;

22 Neofunctionalism Revisited: Theories, Questions, Methodologies 16 Schmitter s Neo-Neo Functionalism; and Hooghe-Marks Postfunctionalism. This section provides a short summary of each stage Mitrany s early Functionalism. Functionalism is no young theory: in fact, it s about to celebrate its hundredth anniversary. It was conceived in the wakes of the collapse of the Central Empires, at the end of the First World War. Interestingly enough, it was born not as a theory of supranational integration, but as a theory of orderly empire dismantlement by the hands of David Mitrany ( ), a British-Romanian political scientist of liberal sensibility. The very early writings of Mitrany on international institutions, dating back to the period and written for the League of Nations, concern the problem of peaceful competences devolution across the collapsing Austrian-Hungarian Empire. Differently from following versions of the theory, Mitrany s original Functionalism lacks truly foundational Oeuvre: rather, the author introduced new concepts and continuously developed older intuitions over his entire life-time. 1 The evolution of Mitrany s thinking is tracked through four key publications: Mitrany (1933), Mitrany (1941), Mitrany (1965) and Mitrany (1975). Rather than a theory of integration, as later Neofunctionalism and its offspring would become, Mitrany s Functionalism is a normative theory of political organization. 2 Mitrany s key idea, today perhaps widely accepted but rather revolutionary for his time, is quite simple: international organisations shall not be based on political sovereignty of supranational institutions, but rather are to be based on the transfer of limited competences (functions) to ad hoc institutions. In general, Mitrany s core assumption is that national constitutions aim to restrict the expansion of social and economic forces which, by nature, tend to be borderless (Mitrany, 1933, in Mitrany, 1975: 97) 3 ; the international 1 Mitrany (1975) provides a late organisation of Mitrany s key writings carried out by Mitrany himself in the volume The Functional Theory of Politics, which contains a collection of relevant papers on Functionalism and interesting autobiographical references. 2 The author s own words provide an excellent definition of its mature thinking: The trend (...) is to organise a government following specific ends and needs, and according to the conditions in their time and place, in lieu of the traditional organisation on the basis of a set of constitutional division of jurisdiction and rights and powers (Mitrany, 1941: 113); the function, one might say, determines the political instrument suitable for [the international organization s] proper activity, and by the same means provides for its reform at every stage (Mitrany, 1941: 118). 3 The 1975 text cites an earlier work from 1933 ( the progress in international government ): but social life, in the widest sense of the term, now rests on an intricate network of goods and services. To insist on a sovereign right to interfere with them is to assume a practical right to disrupt them.

23 Neofunctionalism Revisited: Theories, Questions, Methodologies 17 expansion of social and economic integration necessarily outpaces political integration. Therefore, no traditional constitutional arrangement inferior than a global one would solve the problem of the inconsistency among the development pace of social and economic interdependence and the pace of political integration. Three key organizational principles ensue:(i) functional flexibility: short of a global political arrangement, only functional institutions are flexible enough to adapt rapidly to social and economic integration (Mitrany, 1965); (ii) non-politicization: institutions should avoid redistributive policies and be mainly regulative in nature (Mitrany, 1941:114; 1975: 26-27); (iii) globalism: to prevent substituting national competition with continental competition, regional arrangements should be rejected in favour of global solutions (Mitrany, 1963; 1965; 1975:261). Despite the normative nature of his contribution, Mitrany appears aware of the theoretical implications that his approach bears. In fact, despite the rejection of international federalism as a viable initial solution, he noted that while analysing the unexpected growth of powers of the American fiscal authorities during the New Deal every function was left to generate others gradually: and in every case the appropriate authority was left to develop its functions and powers out of actual performance (Mitrany, 1942, in Mitrany 1975:27). This rough, initial definition of spillover effect would then be cornerstone of later incarnations of the theory, starting from Haas Neofunctionalism. 2.2 Haas Neofunctionalism Neofunctionalism is a broad theory, encompassing many subfields, tens of authors and publications. Originally, however, it was the making of primarily a scholar, Ernst Haas. In fact, some scholars see in Haas work the inception of a separate field at the crossroads between international relations, economics and political science: European Integration studies (Rosamond, 2005). Haas Neofunctionalism, despite the assonance of names, carries fundamental differences from Mitrany s work. First, Neofunctionalism, rather than a collection of normative principles, is a proper and testable theory which does not lack a comprehensive theoretical framework as its ancestor did. At least two volumes present a clear discussion of its theoretical bases: The Uniting of Europe (1958) for what concerns regional integration in Europe, and Beyond the Nation State (1964) presenting a functional theory of international relations on a global scale. Second, Haas attempts to provide systematic empirical tests of his theoretical prescriptions, which were

24 Neofunctionalism Revisited: Theories, Questions, Methodologies 18 largely missing in Mitrany s work. Still, Neofunctionalism had been an evolving project as well: for instance, in 1975 already when Haas quick federalization predictions had clearly failed the theory was abandoned by its own author (Haas, 1975), only to be rediscovered and expanded from 1986 onwards, when the integration process began once more, by Schmitter, Haas and others; a continuous opus of revision which lasted till Haas last days, and concluded a long theoretical paper published few months after his death as an introduction to the 2004 re-edition of The Uniting of Europe. Haas Neofunctionalism analyses the process of supranational integration in two dimensions: a macro dimension, where the path-dependency and institutional logic of integration is assessed in is complexity, and a micro dimension, where the incentives and interests of individual actors is taken into account. The micro dimension of Neofunctionalism (very much influenced by the behavioural revolution that American Political Science was experiencing at the time) is focused on individuals and groups incentives towards integration. Haas agent theory may be labelled as rational constructivism ; agents are rational, as they are aware of their own (economic, social) interests and act to maximise their payoffs; they are forward-looking, meaning that expectations play a key role in their demands; and their interests shift over time and respond, in a feedback process, to the evolution of the institutional environment in which they are embedded. 4 It follows that National preferences, instead of being exogenous variables determined by classical international relations power games, are socially constructed through the interaction of the domestic community of interest groups. Agents political loyalty, too, is socially constructed and depended on economic interests; the dependency of a group s utility on the existence of a given set of (eventually supranational) institutions would produce, over time, a shift of political loyalty towards those institutions. In macro terms, Haas characterises the process of integration in two main phases: market integration (from trade liberalization to free movement of labour and capital) and political integration, which implies integration of fiscal and welfare policies (Haas 1958: 12-13). The connective link between then micro and the macro dimension of Neofunctionalism is the well-known process of spillover, now made explicit by Haas. Integration happens when it is welfare-improving: in other words, when it is output-legitimised. 4 in his last work, published posthumous in 2004, Haas himself relabelled his agent theory as soft rationality, as the forecasting capacities of political agents are limited and theferofe unintended consequences are likely to emerge.

25 Neofunctionalism Revisited: Theories, Questions, Methodologies 19 Therefore, dis-integration becomes increasingly unlikely as integration advances: the further down the process, the more likely that problems are resolved through further integration instead than through dismantlement of institutions. In a truly path-depended fashion, formal, or explicit functions are complemented by latent, unintended functions which were not integrated originally but, following some sort of crisis, may be attributed to the new-born institutions (Haas, 1964; Merton, 1968). Such a competence accrual, however, is not automatic: it still requires a Sovereign agreement. A further coalition agreement is thus required, implying that further integration must be perceived as welfare-enhancing in all participating member states; periods of stagnation may emerge in the meantime. In Haas Neofunctionalism, therefore, crises play a double role: on the one hand, they work as a trigger of the spillover effect, letting latent functions to emerge and shifting agents preferences towards competence accrual; on the other hand, crises are the by-product of divergent interests across interest groups and national communities, and work as brakes applied to the integration process. Despite the attempt to theorize breaks and slowdowns in the integration process, Haas expected a quick federalization process: trade integration would have required credit and currency integration, which in turn would have generated fiscal and political integration; this spill-over may make a political community in Europe in fact even before the end of the transitional period (Haas, 1958). Even if Haas Neofunctionalism implied no specific temporal component (Schmitter 2005: 257), the consequences of the long stagnation period between 1968 and 1986 were sharp for a theory that claimed to make testable conclusions and predicted a quick federalization pace; in fact, its failure and demise was acknowledged by Haas himself (1975). Also, original Neofunctionalism had no lack of shortcomings. First, it underestimated the role of national political leaders as an interest group in their own right, whose particular interest is to protect the competences and powers of the nation-states (intended as bureaucratic institutions) they represent; conversely, it overestimated the loyalty shift of other domestic interest groups. Second, the role of the Supranational bureaucracy, and of the Commission in particular, was excessively emphasized by Neofunctionalism, while the Commission acted, for most part, as a faithful agent of its national principals rather than as an autonomous political body seeking further expansion of its power. Third, the crisisintegration dynamics was largely left untheorized, despite being hinted at; only later work along with Schmitter (1969; 1970) attempted to address this issue, but in a moment when the body of key notions about

26 Neofunctionalism Revisited: Theories, Questions, Methodologies 20 Neofunctionalism was already absorbed by scholarship, and criticism fuelled by growing stagnation in the integration process was on the rise. And finally, the possibility of a geographical spillover, and the consequent effects on the increased difficulty of achieving a great bargain (Scharpf, 1998) were largely neglected, although hinted at Beyond Neofunctionalism: Schmitter s Neo-neofunctionalism When integration started again, following the 1986 Single European Act and the Treaties of Maastricht, Amsterdam and Nice, the idea that integration advances through major crises acquired new centrality. Many events had occurred however, in the meantime; since Haas rebuttal of his own theory (Haas, 1975) two major crises had occurred; several treaties were signed; Europe had moved towards monetary integration and capital liberalization. Moreover, theories of European integration had flourished, enriched by contributions such as Moravcisk s liberal intergoverntalism (Moravcsik, 1998) and Multilevel Governance. On the political spectrum, several referenda (both within the boundaries of the Now- European Union, like in France, Ireland and Denmark, or outside, like in Switzerland or Norway) had shown that the consensus towards European integration could no longer taken for granted from citizens; furthermore, the Maastricht decision from the Bundesverfassungsgericht, and the debate on the missing Demos of the Union had brought the political discourse to challenge the political foundations of the process of integration. The idea that the Union could only be legitimised by its performance (Scharpf, 1970; 1998) was gaining ground. In this broad context, several authors (Schmitter (1969; 1970; 2002); Pierson, 1996; 2001) engage in a wide revision of the aging Neofunctionalist theory, providing a modern version of it endowed with a more complete, and therefore more nuanced vision of the integration process. This section presents Schmitter s Neo-neofunctionalism along with its complementary theory, Historical Institutionalism, as developed by Pierson (1996). Schmitter s neo-neofunctionalism is grounded in four key concepts: (i) functional crises; a complete version of the spilling process which I would label (ii) functional clock,, (iii) functional cycles, and (iv) functional equilibria. 5 These concepts play a fundamental role in this dissertation: Chapter 2 deals with 5 (a detailed description of the latter, as well as the reasons for its peculiar name, are provided in the opening pages of chapter 4).

27 Neofunctionalism Revisited: Theories, Questions, Methodologies 21 the long-run visualization of functional cycles; Chapters 3 and 4 attempt to demonstrate that the Eurocrisis is a functional crisis, qualifying the nature of the spilling effect it generated over the functional clock; Chapters 5, 6 and 7 attempt to assess whether the crisis has produced a shift between functional cycles. It is therefore useful to recall these definitions at this stage of the theoretical introduction. (i) Functional crises. Neo-Neofunctionalism, more than any other previous versions, is a theory of crisis-led integration. In particular, it postulates that integration advances through cycles of functional crises. A functional crisis is characterised by two elements: first, it has, to some extent, endogenous origins; either directly, being the crisis generated by a precise failure of the previous allocation of competences to the supranational institutions, or indirectly, as the allocation of competences to the supranational institutions becomes suboptimal, or even unsustainable, due to changing environmental conditions (Schmitter, 2002). Chapter 3 attempts to demonstrate this point for the Eurocrisis. In both cases, the institutional setting is considered as in functional disequilibrium, meaning that the current allocation of competences is not sustainable for protracted periods of time. Second, a functional crisis must be characterised by a functional resolution, meaning that its solution must involve a reallocation of competences across government layers; either through further integration ( spill-overs and spill-arounds ) or through re-nationalisation of competences ( spill back ); Chapter 4 deals with this issue for the Eurocrisis. This is due, of course, to the attempt (from national leaders and/or the supranational bureaucracy) to reestablish the capacity of the crisis-distressed functions to deliver. This in turn implies, if one thinks carefully, that integration advances when the output legitimacy (Scharpf, 1998) of the Union is low; the Union must have become somewhat dysfunctional for a pressure to reform it to emerge. Such a performance-drive progress, however, creates problems later on in the integration process, when the range of policies dealt at Supranational level include policies with widespread welfare effects, for instance fiscal policies. This issue is largely discussed in Chapters 5-7 of the dissertation.

28 Neofunctionalism Revisited: Theories, Questions, Methodologies 22 (ii) The functional clock. As Schmitter himself put it, any theory of integration should necessarily be also a theory of dis-integration (Schmitter, 1970; 2002; Schmitter and Lefkofridi, 2015a, 2015b). The simple spillover, as intended by early Neofunctionalists like Haas, is not sufficient to model the range of possible functional reactions to a crisis in terms of competences allocation. Therefore, additional concepts are introduced by Schmitter (1970). If spillover is defined as a simultaneous accrual of both the competences and the autonomy of supranational institutions, spill around means competences accrual within an intergovernmental framework; spill-backs, on the other hand, identify a decrease of competences and autonomy. Now, if competences and autonomy are identified as two crossed axes, then a fourth option emerges: weak spill-backs, whereby competences are decreased, but the remaining institutions are strengthened in their autonomy (Schmitter (1970), in a similar setting, refers to such options as muddling-about, although the meaning of the term has changed over time). The reaction following a functional crisis may go in any of these directions, depending on the conditions on the ground; chapter 4 offers a more detailed description of each of the options and of their underlying hypotheses, as well as a graphic visualization of the functional clock. (iii) Functional cycles. The third key concept of Neo-Neo functionalism that crises and integration are not randomly happening episodes; rather, they are interconnected through functional cycles. Each functional cycle, with the exception of the very first one, begins and ends with a functional crisis (Schmitter 2002:20); endogenous forces and path-dependency play a key role in all functional cycles with the exception of the first, where endogenous conditions ( ) and random variables play their most important role (Schmitter, 2002:22). Initiating cycles, albeit hard to predict, are followed by priming cycles, characterised by an autonomous role of supranational bureaucracies and non-governmental actors seeking to expand the role of the new centre ; priming cycles are therefore characterised by a tension towards spillovers. Finally, third and last are transforming cycles, where integration of the economies spills into integration of polities (Schmitter, 2002: 33). Transformative cycles are characterised by increased politicization on several levels: between member-states, on redistributive issues;

29 Neofunctionalism Revisited: Theories, Questions, Methodologies 23 between centralised and national bureaucracies; between parties supporting integration, and parties opposing it. In other words, transformative cycles sign the beginning of a political struggle on the finalité politque of the Union, and will be mostly characterised by a deep political cleavage (almost in a Rokkan-Lipset (1967) fashion) between partisans of the new centre and of the old periphery (Etzioni, 2001). (iv) Functional equilibria (encapsulation). Of course, integration is not a necessity: if a community of states manages to endure a functional crisis, or to solve it, without substantially re-allocating competences across layers of government (for example, by closure of external borders, changes in leaderships or in policies, or endure the pain and simply waiting for background conditions to change again) then the institutions would be considered encapsulated into a functional equilibrium. On the opposite direction, when inherent contradictions exist, then the system is in functional disequilibrium, which of course brings back the concept of crisis endogeneity discussed in the previous paragraphs. If they existed, Insulated Nation States would constitute institutions in functional equilibrium, where the four key functions of sovereignty (maintaining the well-established partition of Bodin (1576)) would be kept, generally, at the same level. Of course, being sovereignty (here, quite differently from Bodin) a divisible concept, supranational integration breaks the nation-state equilibrium. While some international organizations may succeed in finding a new equilibrium and being encapsulated early in the process of integration, the existence of a gravitational attraction of sovereignty pulling the key sovereignty functions either towards complete integration, or towards renationalisation cannot be ruled out a priori. 6 In other words, while encapsulation of international organizations is quite possible, theory suggests that, when integration concerns some (but not all) of the key functions of sovereignty, a pull towards either complete integration or renationalisation exists. 6 Indeed, some scholars (for instance, Genschel and Jachtenfuchs (2016) have interpreted the recent crisis as a pull towards integration of remaining core state powers.